Desperately seeking something (about fast Internet)
by Hadar Horesh
The Marker
March 3, 2003
State-run phone company Bezeq (TASE: BZEQ ) announced last week
it had reached the 200,000-subscriber mark for its high-speed
Internet service. The cable television companies do not usually
publish their figures in this area, but industry sources estimate
their subscribership at about 80,000.
Israel has now joined the list of countries that have a large
broadband Internet subscribership. The age of high-speed Internet
in Israel began in late 2000 after a tough struggle, mainly
because Communications Ministry officials had difficulty
understanding the nature of the new service.
Broadband technologies have existed since the mid-1980s and
began to spread rapidly in the mid-1990s. Israel, which is
usually quick at adopting new communications technologies,
was late in joining the trend. For various bureaucratic and
legal reasons the initiative to grant a high-speed Internet
license to the cable companies in 1999 failed.
Bezeq, which was relatively late in preparing its infrastructure
for the new service, was forced to suffer the Communications
Ministry's deliberate bureaucratic foot-dragging because it
felt that if Bezeq received a license before the cable companies,
it would control the market and stymie effective competition.
It was only at the end of 2000, under heavy political pressure,
that then-communications minister Binyamin Ben-Eliezer consented
to grant Bezeq a license and bring Israel into the broadband era.
The beginning was somewhat lame, as Bezeq was marketing an
expensive service by any standards. Monthly fees were NIS 149
for a surfing speed of 1.5 megabits per second. Public awareness
and demand for the service were much lower than expected,
due to the immense efforts that Bezeq and the cable companies
had invested in obtaining their licenses.
In the service's first year of operation Bezeq ignored the
criticism of the high price, stridently claiming that it would be
impossible otherwise, considering that the Communications Ministry
refused to allow Bezeq to provide both the infrastructure service
and access service directly.
Lower prices did the trick
Only in September 2001 was the formula found for springboarding
the use of the high-speed network - Bezeq began offering service
packages at lower prices. For NIS 90-100 per month high-speed
became the logical choice for moderate to heavy surfers (in terms
of surfing time). Most surfers would barely notice the difference
in the surfing speed between high-speed surfing at 1.5 megabits
per second in the expensive packages and 0.25-0.5 mbps in the
cheaper packages.
The market was supposed to get a boost at the beginning of 2002,
when the cable companies received their licenses to operate
high-speed Internet. It turned out, however, that the companies,
which had looked to the high-speed Internet as the key to
rescuing their businesses and to competing effectively with
Bezeq, had not prepared properly to provide efficient service
or to compete with Bezeq. Only in September 2002 did the three
cable companies - Tevel, Golden Channels and Matav - come up
with a joint operating and marketing plan.
Their advertising campaign and Bezeq's response were unimpressive
but were nonetheless effective. Bezeq's data show that awareness
of high-speed Internet did rise. In the fourth quarter of 2002
Bezeq signed up 50,000 subscribers, a 24-percent increase over
the previous quarter. From September to December 2002 the
cable companies attracted 40,000 subscribers, a respectable
achievement, considering the competition.
High-speed Internet also received a boost from the Internet
Service Providers (ISPs), who at first had belittled the
business potential of broadband services. At first only Bezeq
International, a subsidiary of Bezeq, supported the development
of the new market. The last to hop on the bandwagon was
Internet Zahav, which only realized the enormity of its business
error toward the end of 2002.
Mainly video and music clips
Broadband Internet has become a product for the masses.
Most high-speed surfers are young, usually male and use the
service mainly to download music and video files using file-sharing
programs such as Kazaa.
Pnina Shenhav, Bezeq's vice president for marketing and
sales, says that the company's surveys show that half of the
subscribers are aged 14-24, and 75% of them are male;
that there are children in 18% of the homes hooked up to
broadband services and that one-third of the surfing time
is devoted to downloading music and videos files.
These figures paint a different reality than that promised
two years ago, when the cable companies and Bezeq accused
the Communications Ministry of harming Israel's technological
and educational development. The high-speed Internet lobby
used to talk about e-learning, the merging of the TV and
the computer, on-demand video services, e-commerce, video-phoning
and multi-player online computer games - a new and wonderful world
that would be created as soon as the communications minister signed
the licenses. In effect, surfers benefit mainly from short film
clips and the faster delivery of e-mail messages - and that's
about it.
"The market will jump to the next level only when suitable content
is developed," says Shenhav. The main problem is that there is
no local content for the Israeli surfer, and almost all the
high-speed Internet content comes from abroad. The high cost
of the hook-up and the distance affect the speed of downloading
files and the surfing experience.
An open garden
In the next stage the competition between Bezeq and the cable
companies is supposed to expand to other services, mainly
regarding access to content. In the past year Bezeq has been
considering several models for handling high-speed Internet
content, even though the Communications Ministry is insistent
on not allowing Bezeq to be involved in providing content.
One of the proposed models is that of an "open garden,"
in which Bezeq would build the infrastructure and all the
ISPs would be allowed to use it to transmit content to the
company's subscribers. Bezeq is even willing to allow the
ISPs to reach the cable companies' high-speed Internet
subscribers via its infrastructure.
The largest and most daring local high-speed Internet content
initiative was that of Nonstop, which was founded by Matav,
but closed in September 2001. Nonstop closed due to Matav's
financial difficulties and the delay in its receipt of a
high-speed Internet license. Even after the granting of
the licenses, however, neither Matav nor any other entrepreneur
embarked on another initiative.
Now that there are close to 300,000 high-speed Internet
subscribers, no one here can claim that the market lacks
potential. The main problem is the creation of a popular
service and charging money for it. Internet entrepreneurs
in Israel and elsewhere still bear the scars of failed attempts
to sell services over the web. The high-speed offerings of
local Internet sites have been quite dismal, consisting mainly
of film clips and abridged versions of TV series.
Bezeq claims that it can set up a network of servers beside
residential neighborhoods, thus providing direct high-speed
access to content. The Communications Ministry has delayed
the implementation of such a plan for various reasons,
but mainly because it wants to prevent Bezeq from being
directly involved in providing content.
Communications Ministry director-general Uri Olenik claims
that Bezeq could get a permit to set up such a network via
one of its subsidiaries, but Bezeq contends that the network
must be part of its own infrastructure.